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Diversify Further! Checkbook Investing With IRA Funds

Aug. 14, 2019 3:36 PM ET18 Comments


  • Becoming able to directly invest your IRA funds opens up many investment opportunities.
  • To do this, you establish an LLC, but in a rather convoluted way.
  • Here I take you through the process I used, and you could use, to take advantage of the wider diversification this makes possible.
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I decided recently to begin making direct investments using retirement funds. Figure 1 shows some of the opportunities. One may find private equity investments. One may decide to invest in gold, cryptocurrencies, or commodities. One may decide to invest in real estate or real estate loans.

Many investment options open up with a self-directed IRA.

Figure 1. Many investment options open up with a self-directed IRA. Source.

A promising approach to many such investments is to make them via crowdfunding sites (Figure 2). Examples in real estate include EquityMultiple and Fundrise. A more off the wall example is to crowdfund a mine.

This article reports my experiences getting to the point of being able to invest and beginning to do so.

Crowdfunding can provide an effective path to diversification. Source.

Figure 2. Crowdfunding can provide an effective path to diversification. Source.

The Tax Man Has Many Colors

For a number of years, I will be paying a good bit of regular income taxes as I pull funds progressively out of the TIRA environment and into Roth funds or taxable funds. Deciding how to go about this is an interesting issue.

Because my funds have been locked away, I have worried little about taxes on investment income. For any funds that are not held long enough for the earnings on the earnings to become significant, at first blush it does not matter where one puts them.

So I started accumulating some after-tax funds and began to invest them. I was happily proceeding until out of the blue I remembered … NIIT.

NIIT is the Net Investment Income Tax. As one of the compromises associated with the 2017 tax bill, this tax was made more onerous. If you exceed an income threshold, as I will at least until I finish pulling funds out of the TIRAs, then you pay an extra 3.8% on investments that might be described as passive. Ouch! The implication for me is that I

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This article was written by

R. Paul Drake profile picture
Become a “Passive Landlord” with our 8% Yielding Real Estate Portfolio.
R Paul Drake brings a retiree perspective to his writing. After investing via employer tax-deferred plans for several decades, he has in recent years broadened into a variety of more focused investments. Paul is a life-long reader of works on economics, finance, and investment. He embraces a value-investing approach, which led him to join the team of authors at High Yield Landlord and to learn to analyze REITs. Most of his writing at present is focused on REITs.

          Paul brings substantial experience in research, and in understanding and developing models of uncertain systems, from his decades working as a physicist. He wrote his first Monte Carlo model aimed at investments in 2006. He has intensively researched and modeled a wide variety of portfolio options. Among other degrees, he holds a doctorate in physics and a bachelors in philosophy. His career began with running large projects for a major research laboratory, and continued with a long, and award-winning run as a professor at the University of Michigan. He has authored nearly 300 articles published in formal academic journals, and two editions of a textbook.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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